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Stock Market Outlook for April 18, 2018

Benchmarks moving back above resistance at 50-day moving averages.

 

Real Time Economic Calendar provided by Investing.com.

 

*** Stocks highlighted are for information purposes only and should not be considered as advice to purchase or to sell mentioned securities.   As always, the use of technical and fundamental analysis is encouraged in order to fine tune entry and exit points to average seasonal trends.

Stocks Entering Period of Seasonal Strength Today:

Meridian Bioscience Inc. (NASD:VIVO) Seasonal Chart

Meridian Bioscience Inc. (NASD:VIVO) Seasonal Chart

Matthews Intl Corp. (NASD:MATW) Seasonal Chart

Matthews Intl Corp. (NASD:MATW) Seasonal Chart

Teledyne Technologies (NYSE:TDY) Seasonal Chart

Teledyne Technologies (NYSE:TDY) Seasonal Chart

Centric Health (TSE:CHH) Seasonal Chart

Centric Health (TSE:CHH) Seasonal Chart

Reeds, Inc. (AMEX:REED) Seasonal Chart

Reeds, Inc. (AMEX:REED) Seasonal Chart

The Kroger Co.  (NYSE:KR) Seasonal Chart

The Kroger Co. (NYSE:KR) Seasonal Chart

First Defiance Financial Corp. (NASD:FDEF) Seasonal Chart

First Defiance Financial Corp. (NASD:FDEF) Seasonal Chart

 

 

The Markets

Stocks rallied on Tuesday as an earnings beat from Netflix (NFLX) reignited the much loved FANG trade.  Shares of NFLX, the “N” in the widely used acronym, surged by close to ten percent, moving to a new all-time high.  The other members of the FANG clan were higher by 2% to 5%, recovering from the selloff that has dominated the tech sector over the past month.

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With technology back in gear, the S&P 500 Index closed higher by around one percent, moving above 50-day moving average resistance that has acted as a significant hurdle across the US benchmarks over the past couple of months.  Looking at the Dow Jones Industrial Average, the break of the 50-day average also coincided with a move above a descending triangle pattern, which threatened a significant move lower if horizontal support around 23,500 was broken.  The bulls will now want to see these previous levels of resistance now act as support in order to regain confidence that the lows to this rather typical ABC correction have beet achieved.

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A number of economic reports were released on Tuesday, so let’s dive in.  First on the docket was housing starts for March, the headline print indicated that activity increased by 1.9% to a seasonally adjusted annual rate of 1.319 million.  The consensus estimate was for a rate of 1.264 million.  Permits, meanwhile ticked higher by 2.5% to a rate of 1.354 million, again exceeding the consensus estimate calling for 1.315 million.  Stripping out the seasonal adjustments, housing starts actually increased by 18.5%, which is short of the 21.3% average increase for this third month of the year.  Year-to-date, the strength through the first quarter is 7.1% above the seasonal average trend, the best start to the year since 2013.  Three of the four regions showed above average growth in the first three months of the year, with the south showing a gain that was merely inline with historical norms.  Starts in the south had initially looked poised to put in strong results in 2018 following the storms that took a significant toll in the fall of last year, but weak results in February and now in March suggest that the rebuilding requirements have been fulfilled.  Encouraging of future activity is the above average rise in permits, which are running 3.1% above average to start the year.  And housing units completed, the steadier category of the report, continues to maintain an above average pace a builders bring product to the market.  But, as with other areas of the economy, it is not the pace of production that warrants attention, rather the sell through rate needs to be monitored as companies continue to add product to inventory in anticipation of strong spending in this new tax era.  We’ll receive insight on this front at the start of next week with reports on existing and new home sales.  Housing sales, both new and existing, had been running below average in the first two months of the year.

Housing Starts Seasonal Chart

Monthly Housing Starts Data

Housing Starts Seasonal Chart

Housing Starts: Northeast Region Seasonal Chart Housing Starts: Midwest Region Seasonal Chart Housing Starts: South Region Seasonal Chart Housing Starts: West Region Seasonal Chart Building Permits Seasonal Chart Housing Units Authorized, But Not Started Seasonal Chart Housing Units Completed Seasonal Chart

The report on Canada Manufacturing Sales emphasized the growing inventory problem that producers are realizing.  Canada manufacturing sales showed a month-over-month increase of 1.9% in February, rebounding from the 1.3% decline recorded previously.  Stripping out the seasonal adjustments, sales of goods manufactured (shipments) were actually down by 2.4%, negatively diverging from the 0.2% average gain for the second month of the year.  Sales are now lower on the year by 1.2%, worse than the average decline by this point of 0.8%.  Perhaps offering a glimmer of hope that the strength in sales will return is the above average gains in new and unfilled orders, which are running above the seasonal trend by 3.2% and 0.7%, respectively.  But, as mentioned previously, the rise in inventories suggests that the pace of sales are not meeting the demand that was expected coming into this year.  Inventories are higher by 6.3%, well above the average increase for the first two months of the year of 3.9%.  Excessive inventories threatens growth and margins in future months, but, at this early stage in the new year, it would be premature to conclude that this is the path set for the economy.  Areas within Canada’s manufacturing economy that are showing strength early in this new year include breweries, wineries, paper, chemicals, pharmaceuticals, tires, iron and steel mills, computers and electronics, and batteries.  Equipment and vehicle manufacturing, which continue to be a positive for manufacturing activity in the US, are weighing on the sector north of the border.  Seasonally, sales of manufactured goods tend to reach their highs of the year in March as companies push through activity ahead of the close of the first quarter.

Sales of goods manufactured (shipments) Seasonal Chart

Monthly Sales of goods manufactured (shipments) Data

Sales of goods manufactured (shipments) Seasonal Chart

New orders, estimated values of orders received during month Seasonal Chart Unfilled orders, estimated values of orders at end of month Seasonal Chart Raw materials, fuel, supplies, components, estimated values at end of month Seasonal Chart Goods or work in process, estimated values at end of month Seasonal Chart Finished goods manufactured, estimated values at end of  month Seasonal Chart Total inventory, estimated values of total inventory at end of the month Seasonal Chart

And turning to manufacturing activity in the US, the March report on industrial production was released just before the opening bell.  The headline print indicated that activity increased by 0.5%, edging out the consensus estimate that called for a 0.4% gain.  Manufacturing, meanwhile, showed an increase of 0.1%, marginally missing the forecasted increase of 0.2%.  Stripping out the seasonal adjustments, total industrial production actually increased by 0.9%, just edging past the average increase for the third month of the year of 0.8%.  The result puts the year-to-date change at +1.8%, firmly above the 1.2% average increase through the first quarter.  Continuing to factor prominently in the report is durable goods production, which is showing above average strength for industrial, consumer, and business goods.  Home electronics and automotive products are helping to power the consumer side, while information processing is showing the best first quarter change in a decade for the business equipment category.  The report emphasizes the strength and optimism of both the consumer and business for the year ahead, no doubt influenced by the new tax laws that were passed at the end of last year.   Of course, this bodes well for cyclical sectors of the equity market.  Manufacturing and industrial production activity in the US tend to hit an important peak for the year in June before dipping through the summer shutdown period in July.  For a complete breakdown of the results, the seasonal charts can be accessed via the chart database at https://charts.equityclock.com/u-s-industrial-production.

Industrial Production: Total Seasonal Chart

Monthly Industrial Production: Total Data

Sentiment on Tuesday, as gauged by the put-call ratio, ended close to neutral at 0.96.

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Sectors and Industries entering their period of seasonal strength:

NASDAQ Composite Seasonal Chart

$COMPQ Relative to the S&P 500
$COMPQ Relative to the S&P 500

$COMPQ Monthly Averages

 

 

Seasonal charts of companies reporting earnings today:

Abbott Laboratories (ABT) Seasonal Chart Alcoa Corporation (AA) Seasonal Chart American Express Company (AXP) Seasonal Chart ASML Holding N.V. (ASML) Seasonal Chart Canadian Pacific Railway Limited (CP) Seasonal Chart Cathay General Bancorp (CATY) Seasonal Chart Cohen & Steers Inc (CNS) Seasonal Chart Consumer Portfolio Services, Inc. (CPSS) Seasonal Chart Crown Castle International Corporation (CCI) Seasonal Chart Crown Holdings, Inc. (CCK) Seasonal Chart Eagle Bancorp, Inc. (EGBN) Seasonal Chart MGIC Investment Corporation (MTG) Seasonal Chart Morgan Stanley (MS) Seasonal Chart Pier 1 Imports, Inc. (PIR) Seasonal Chart SL Green Realty Corporation (SLG) Seasonal Chart Sleep Number Corporation (SNBR) Seasonal Chart Steel Dynamics, Inc. (STLD) Seasonal Chart Textron Inc. (TXT) Seasonal Chart Torchmark Corporation (TMK) Seasonal Chart U.S. Bancorp (USB) Seasonal Chart United Rentals, Inc. (URI) Seasonal Chart Universal Forest Products, Inc. (UFPI) Seasonal Chart Valmont Industries, Inc. (VMI) Seasonal Chart

 

 

S&P 500 Index

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TSE Composite

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